II 

115TH CONGRESS 

1ST SESSION S. 1444 

To amend the Internal Revenue Code of 1986 to modify the tax treatment 

of certain equity grants. 

IN THE SENATE OF THE UNITED STATES 

JUNE 27, 2017 

Mr. WARNER (for himself and Mr. HELLER) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to modify 

the tax treatment of certain equity grants. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Empowering Employ5 ees through Stock Ownership Act’’. 

6 SEC. 2. TREATMENT OF QUALIFIED EQUITY GRANTS. 

7 (a) IN GENERAL.—Section 83 of the Internal Rev8 enue Code of 1986 is amended by adding at the end the 

9 following new subsection: 

10 ‘‘(i) QUALIFIED EQUITY GRANTS.— 


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1 ‘‘(1) IN GENERAL.—For purposes of this sub2 title— 

3 ‘‘(A) TIMING OF INCLUSION.—If qualified 

4 stock is transferred to a qualified employee who 

5 makes an election with respect to such stock 

6 under this subsection, subsection (a) shall be 

7 applied by including the amount determined 

8 under such subsection with respect to such 

9 stock in income of the employee in the taxable 

10 year determined under subparagraph (B) in lieu 

11 of the taxable year described in subsection (a). 

12 ‘‘(B) TAXABLE YEAR DETERMINED.—The 

13 taxable year determined under this subpara14 graph is the taxable year of the employee which 

15 includes the earliest of— 

16 ‘‘(i) except as provided in subpara17 graph (C), the first date such qualified 

18 stock becomes transferable (including, sole19 ly for purposes of this clause, becoming 

20 transferable to the employer), 

21 ‘‘(ii) the date the employee first be22 comes an excluded employee, 

23 ‘‘(iii) except as provided in subpara24 graph (C), the first date on which any 

25 stock of the corporation which issued the 


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1 qualified stock becomes readily tradable on 

2 an established securities market (as deter3 mined by the Secretary, but not including 

4 any market unless such market is recog5 nized as an established securities market 

6 by the Secretary for purposes of a provi7 sion of this title other than this sub8 section), 

9 ‘‘(iv) the date that is 7 years after the 

10 first date the rights of the employee in 

11 such stock are transferable or are not sub12 ject to a substantial risk of forfeiture, 

13 whichever occurs earlier, or 

14 ‘‘(v) the date on which the employee 

15 revokes (at such time and in such manner 

16 as the Secretary may provide) the election 

17 under this subsection with respect to such 

18 stock. 

19 ‘‘(C) SPECIAL RULE FOR STOCK SUBJECT

20 TO LOCK-UP PERIODS.— 

21 ‘‘(i) IN GENERAL.—In the case of any 

22 qualified stock which is subject to a lock23 up period— 


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1 ‘‘(I) such stock shall not be treat2 ed as transferable under subpara3 graph (B)(i), and 

4 ‘‘(II) such stock shall not be 

5 treated as readily tradable on an es6 tablished securities market under sub7 paragraph (B)(iii), 

8 before the end of the lock-up period. 

9 ‘‘(ii) LOCK-UP PERIOD.—For purposes 

10 of this subparagraph, the term ‘lock-up pe11 riod’ means any period (not to exceed 180 

12 days)— 

13 ‘‘(I) which begins on the date of 

14 an initial public offering, and 

15 ‘‘(II) during which the qualified 

16 employee agrees, pursuant to an un17 derwriting agreement entered into 

18 pursuant to such initial public offer19 ing, not to sell, otherwise dispose of, 

20 or hedge any qualified stock. 

21 ‘‘(2) QUALIFIED STOCK.— 

22 ‘‘(A) IN GENERAL.—For purposes of this 

23 subsection, the term ‘qualified stock’ means, 

24 with respect to any qualified employee, any 


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1 stock in a corporation which is the employer of 

2 such employee, if— 

3 ‘‘(i) such stock is received— 

4 ‘‘(I) in connection with the exer5 cise of an option, or 

6 ‘‘(II) in settlement of a restricted 

7 stock unit, and 

8 ‘‘(ii) such option or restricted stock 

9 unit was granted by the corporation— 

10 ‘‘(I) in connection with the per11 formance of services as an employee, 

12 and 

13 ‘‘(II) during a calendar year in 

14 which such corporation was an eligible 

15 corporation. 

16 ‘‘(B) LIMITATION.—The term ‘qualified 

17 stock’ shall not include any stock if the em18 ployee may sell such stock to, or otherwise re19 ceive cash in lieu of stock from, the corporation 

20 at the time that the rights of the employee in 

21 such stock first become transferable or not sub22 ject to a substantial risk of forfeiture. 

23 ‘‘(C) ELIGIBLE CORPORATION.—For pur24 poses of subparagraph (A)(ii)(II)— 


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1 ‘‘(i) IN GENERAL.—The term ‘eligible 

2 corporation’ means, with respect to any 

3 calendar year, any corporation if— 

4 ‘‘(I) no stock of such corporation 

5 (or any predecessor of such corpora6 tion) is readily tradable on an estab7 lished securities market (as deter8 mined under paragraph (1)(B)(iii)) 

9 during any preceding calendar year, 

10 and 

11 ‘‘(II) such corporation has a writ12 ten plan for such calendar year which 

13 meets the requirements of clause (ii). 

14 ‘‘(ii) PLAN REQUIREMENTS.—A writ15 ten plan meets the requirements of this 

16 clause with respect to any calendar year 

17 if— 

18 ‘‘(I) not less than 80 percent of 

19 all employees who first become em20 ployees of such corporation during 

21 such calendar year are granted stock 

22 options, or restricted stock units, with 

23 the same rights and privileges to re24 ceive qualified stock, and 


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1 ‘‘(II) not less than 80 percent of 

2 all employees who were employees of 

3 such corporation during the preceding 

4 calendar year hold stock options, or 

5 restricted stock units, with the same 

6 rights and privileges to receive quali7 fied stock. 

8 ‘‘(iii) SAME RIGHTS AND PRIVI9 LEGES.—For purposes of clause (ii)— 

10 ‘‘(I) except as provided in sub11 clauses (II) and (III), the determina12 tion of rights and privileges with re13 spect to stock shall be made in a simi14 lar manner as under section 

15 423(b)(5), 

16 ‘‘(II) employees shall not fail to 

17 be treated as having the same rights 

18 and privileges to receive qualified 

19 stock solely because the number of 

20 shares available to all employees is not 

21 equal in amount, so long as the num22 ber of shares available to each em23 ployee is more than a de minimis 

24 amount, and 


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1 ‘‘(III) rights and privileges with 

2 respect to the exercise of an option 

3 shall not be treated as the same as 

4 rights and privileges with respect to 

5 the settlement of a restricted stock 

6 unit. 

7 ‘‘(iv) EMPLOYEE.—For purposes of 

8 clause (ii), the term ‘employee’ shall not 

9 include— 

10 ‘‘(I) any employee described in 

11 section 4980E(d)(4), 

12 ‘‘(II) any excluded employee, and 

13 ‘‘(III) with respect to any cor14 poration for any calendar year, any 

15 individual who provides services for 

16 such corporation in the United States 

17 (or any possession of the United 

18 States) for a period of less than 90 

19 days during such calendar year. 

20 ‘‘(v) SPECIAL RULE FOR CALENDAR

21 YEARS BEFORE 2020.—In the case of any 

22 calendar year beginning before January 1, 

23 2020, clause (ii) shall be applied without 

24 regard to whether the rights and privileges 


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1 with respect to the qualified stock are the 

2 same. 

3 ‘‘(3) QUALIFIED EMPLOYEE; EXCLUDED EM4 PLOYEE.—For purposes of this subsection— 

5 ‘‘(A) IN GENERAL.—The term ‘qualified 

6 employee’ means any individual who— 

7 ‘‘(i) is not an excluded employee, and 

8 ‘‘(ii) agrees in the election made 

9 under this subsection to meet such require10 ments as are determined by the Secretary 

11 to be necessary to ensure that the with12 holding requirements of the corporation 

13 under chapter 24 with respect to the quali14 fied stock are met. 

15 ‘‘(B) EXCLUDED EMPLOYEE.—The term 

16 ‘excluded employee’ means, with respect to any 

17 corporation, any individual— 

18 ‘‘(i) who was a 1-percent owner (with19 in the meaning of section 416(i)(1)(B)(ii)) 

20 at any time during the 10 preceding cal21 endar years, 

22 ‘‘(ii) who is or has been at any prior 

23 time— 


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1 ‘‘(I) the chief executive officer of 

2 such corporation or an individual act3 ing in such a capacity, or 

4 ‘‘(II) the chief financial officer of 

5 such corporation or an individual act6 ing in such a capacity, 

7 ‘‘(iii) who bears a relationship de8 scribed in section 318(a)(1) to any indi9 vidual described in subclause (I) or (II) of 

10 clause (ii), or 

11 ‘‘(iv) who was for any of the 10 pre12 ceding taxable years one of the 4 highest 

13 compensated officers of such corporation, 

14 determined with respect to each such tax15 able year on the basis of the shareholder 

16 disclosure rules for compensation under 

17 the Securities Exchange Act of 1934 (as if 

18 such rules applied to such corporation). 

19 ‘‘(4) ELECTION.— 

20 ‘‘(A) TIME FOR MAKING ELECTION.—An 

21 election with respect to qualified stock shall be 

22 made under this subsection no later than 30 

23 days after the first date the rights of the em24 ployee in such stock are transferable or are not 

25 subject to a substantial risk of forfeiture, 


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1 whichever occurs earlier, and shall be made in 

2 a manner similar to the manner in which an 

3 election is made under subsection (b). 

4 ‘‘(B) LIMITATIONS.—No election may be 

5 made under this section with respect to any 

6 qualified stock if— 

7 ‘‘(i) the qualified employee has made 

8 an election under subsection (b) with re9 spect to such qualified stock, 

10 ‘‘(ii) any stock of the corporation 

11 which issued the qualified stock is readily 

12 tradable on an established securities mar13 ket (as determined under paragraph 

14 (1)(B)(iii)) at any time before the election 

15 is made, or 

16 ‘‘(iii) such corporation purchased any 

17 of its outstanding stock in the calendar 

18 year preceding the calendar year which in19 cludes the first date the rights of the em20 ployee in such stock are transferable or are 

21 not subject to a substantial risk of for22 feiture, unless— 

23 ‘‘(I) not less than 25 percent of 

24 the total dollar amount of the stock so 

25 purchased is deferral stock, and 


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1 ‘‘(II) the determination of which 

2 individuals from whom deferral stock 

3 is purchased is made on a reasonable 

4 basis. 

5 ‘‘(C) DEFINITIONS AND SPECIAL RULES

6 RELATED TO LIMITATION ON STOCK REDEMP7 TIONS.— 

8 ‘‘(i) DEFERRAL STOCK.—For pur9 poses of this paragraph, the term ‘deferral 

10 stock’ means stock with respect to which 

11 an election is in effect under this sub12 section. 

13 ‘‘(ii) DEFERRAL STOCK WITH RE14 SPECT TO ANY INDIVIDUAL NOT TAKEN

15 INTO ACCOUNT IF INDIVIDUAL HOLDS DE16 FERRAL STOCK WITH LONGER DEFERRAL

17 PERIOD.—Stock purchased by a corpora18 tion from any individual shall not be treat19 ed as deferral stock for purposes of sub20 paragraph (B)(iii) if such individual (im21 mediately after such purchase) holds any 

22 deferral stock with respect to which an 

23 election has been in effect under this sub24 section for a longer period than the elecVerDate Sep 11 2014 05:48 Jul 07, 2017 Jkt 069200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1444.IS S1444

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1 tion with respect to the stock so pur2 chased. 

3 ‘‘(iii) PURCHASE OF ALL OUT4 STANDING DEFERRAL STOCK.—The re5 quirements of subclauses (I) and (II) of 

6 subparagraph (B)(iii) shall be treated as 

7 met if the stock so purchased includes all 

8 of the corporation’s outstanding deferral 

9 stock. 

10 ‘‘(iv) REPORTING.—Any corporation 

11 which has outstanding deferral stock as of 

12 the beginning of any calendar year and 

13 which purchases any of its outstanding 

14 stock during such calendar year shall in15 clude on its return of tax for the taxable 

16 year in which, or with which, such calendar 

17 year ends the total dollar amount of its 

18 outstanding stock so purchased during 

19 such calendar year and such other infor20 mation as the Secretary may require for 

21 purposes of administering this paragraph. 

22 ‘‘(5) CONTROLLED GROUPS.—For purposes of 

23 this subsection, all corporations which are treated as 

24 a single employer under section 414(b) shall be 

25 treated as one corporation. 


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1 ‘‘(6) NOTICE REQUIREMENT.—Any corporation 

2 which transfers qualified stock to a qualified em3 ployee shall, at the time that (or a reasonable period 

4 before) an amount attributable to such stock would 

5 (but for this subsection) first be includible in the 

6 gross income of such employee— 

7 ‘‘(A) certify to such employee that such 

8 stock is qualified stock, and 

9 ‘‘(B) notify such employee— 

10 ‘‘(i) that the employee may elect to 

11 defer income on such stock under this sub12 section, and 

13 ‘‘(ii) that, if the employee makes such 

14 an election— 

15 ‘‘(I) the amount of income recog16 nized at the end of the deferral period 

17 will be based on the value of the stock 

18 at the time at which the rights of the 

19 employee in such stock first become 

20 transferable or not subject to substan21 tial risk of forfeiture, notwithstanding 

22 whether the value of the stock has de23 clined during the deferral period, 

24 ‘‘(II) the amount of such income 

25 recognized at the end of the deferral 


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1 period will be subject to withholding 

2 under section 3401(i) at the rate de3 termined under section 3402(t), and 

4 ‘‘(III) the responsibilities of the 

5 employee (as determined by the Sec6 retary under paragraph (3)(A)(ii)) 

7 with respect to such withholding.’’. 

8 (b) WITHHOLDING.— 

9 (1) TIME OF WITHHOLDING.—Section 3401 of 

10 the Internal Revenue Code of 1986 is amended by 

11 adding at the end the following new subsection: 

12 ‘‘(i) QUALIFIED STOCK FOR WHICH AN ELECTION IS

13 IN EFFECT UNDER SECTION 83(i).—For purposes of sub14 section (a), qualified stock (as defined in section 83(i)) 

15 with respect to which an election is made under section 

16 83(i) shall be treated as wages— 

17 ‘‘(1) received on the earliest date described in 

18 section 83(i)(1)(B), and 

19 ‘‘(2) in an amount equal to the amount in20 cluded in income under section 83 for the taxable 

21 year which includes such date.’’. 

22 (2) AMOUNT OF WITHHOLDING.—Section 3402 

23 of such Code is amended by adding at the end the 

24 following new subsection: 


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1 ‘‘(t) RATE OF WITHHOLDING FOR CERTAIN

2 STOCK.—In the case of any qualified stock (as defined in 

3 section 83(i)(2)) with respect to which an election is made 

4 under section 83(i)— 

5 ‘‘(1) the rate of tax under subsection (a) shall 

6 not be less than the maximum rate of tax in effect 

7 under section 1, and 

8 ‘‘(2) such stock shall be treated for purposes of 

9 section 3501(b) in the same manner as a non-cash 

10 fringe benefit.’’. 

11 (c) COORDINATION WITH OTHER DEFERRED COM12 PENSATION RULES.— 

13 (1) ELECTION TO APPLY DEFERRAL TO STATU14 TORY OPTIONS.— 

15 (A) INCENTIVE STOCK OPTIONS.—Section 

16 422(b) of the Internal Revenue Code of 1986 is 

17 amended by adding at the end the following: 

18 ‘‘Such term shall not include any option if an 

19 election is made under section 83(i) with re20 spect to the stock received in connection with 

21 the exercise of such option.’’. 

22 (B) EMPLOYEE STOCK PURCHASE

23 PLANS.—Section 423 of such Code is amend24 ed— 


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1 (i) by adding at the end of subsection 

2 (a) the following flush sentence: 

3 ‘‘The preceding sentence shall not apply to any share of 

4 stock with respect to which an election is made under sec5 tion 83(i).’’; and 

6 (ii) in subsection (b)(5), by striking 

7 ‘‘and’’ before ‘‘the plan’’ and by inserting 

8 ‘‘, and the rules of section 83(i) shall apply 

9 in determining which employees have a 

10 right to make an election under such sec11 tion’’ before the semicolon at the end. 

12 (C) CONFORMING AMENDMENTS.— 

13 (i) Section 3121(a)(22)(A) of the In14 ternal Revenue Code of 1986 is amended 

15 by inserting ‘‘(other than qualified stock 

16 (as defined in section 83(i)(2)) with re17 spect to which an election is in effect 

18 under section 83(i))’’ after ‘‘a share of 

19 stock’’. 

20 (ii) Section 209(a)(19)(A) of the So21 cial Security Act (42 U.S.C. 409) is 

22 amended by ‘‘(other than qualified stock 

23 (as defined in section 83(i)(2) of the Inter24 nal Revenue Code of 1986) with respect to 

25 which an election is in effect under section 


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1 83(i) of such Code)’’ after ‘‘a share of 

2 stock’’. 

3 (iii) Section 3231(e)(12)(A) of the In4 ternal Revenue Code of 1986 is amended 

5 by inserting ‘‘(other than qualified stock 

6 (as defined in section 83(i)(2)) with re7 spect to which an election is in effect 

8 under section 83(i))’’ after ‘‘a share of 

9 stock’’. 

10 (iv) Section 3306(b)(19)(A) of the In11 ternal Revenue Code of 1986 is amended 

12 by inserting ‘‘(other than qualified stock 

13 (as defined in section 83(i)(2)) with re14 spect to which an election is in effect 

15 under section 83(i))’’ after ‘‘a share of 

16 stock’’. 

17 (2) TREATMENT UNDER NONQUALIFIED DE18 FERRED COMPENSATION PLAN.—Subsection (d) of 

19 section 409A of such Code is amended by adding at 

20 the end the following new paragraph: 

21 ‘‘(7) TREATMENT OF QUALIFIED STOCK.—An 

22 arrangement under which an employee may receive 

23 qualified stock (as defined in section 83(i)(2)) shall 

24 not be treated as a nonqualified deferred compensa25 tion plan, or as failing to meet the requirements of 


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1 this section, solely because of an employee’s election, 

2 or ability to make an election, to defer recognition 

3 of income under section 83(i).’’. 

4 (d) INFORMATION REPORTING.—Section 6051(a) of 

5 the Internal Revenue Code of 1986 is amended by striking 

6 ‘‘and’’ at the end of paragraph (14), by striking the period 

7 at the end of paragraph (15) and inserting a comma, and 

8 by inserting after paragraph (15) the following new para9 graphs: 

10 ‘‘(16) the amount includible in gross income 

11 under subparagraph (A) of section 83(i)(1) with re12 spect to an event described in subparagraph (B) of 

13 such section which occurs in such calendar year, and 

14 ‘‘(17) the aggregate amount of income which is 

15 being deferred pursuant to elections under section 

16 83(i), determined as of the close of the calendar 

17 year.’’. 

18 (e) PENALTY FOR FAILURE OF EMPLOYER TO PRO19 VIDE NOTICE OF TAX CONSEQUENCES.—Section 6652 of 

20 the Internal Revenue Code of 1986 is amended by adding 

21 at the end the following new subsection: 

22 ‘‘(p) FAILURE TO PROVIDE NOTICE UNDER SECTION

23 83(i).—In the case of each failure to provide a notice as 

24 required by section 83(i)(6), at the time prescribed there25 for, unless it is shown that such failure is due to reasonVerDate Sep 11 2014 05:48 Jul 07, 2017 Jkt 069200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S1444.IS S1444

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1 able cause and not to willful neglect, there shall be paid, 

2 on notice and demand of the Secretary and in the same 

3 manner as tax, by the person failing to provide such no4 tice, an amount equal to $100 for each such failure, but 

5 the total amount imposed on such person for all such fail6 ures during any calendar year shall not exceed $50,000.’’. 

7 (f) GUIDANCE.—Not later than December 31, 2018, 

8 the Secretary of the Treasury (or the Secretary’s delegate) 

9 shall issue guidance with respect to section 83(i) of the 

10 Internal Revenue Code of 1986 (as added by this section), 

11 including guidance relating to— 

12 (1) the determination the time stock first be13 comes transferable under such section; 

14 (2) the determination of rights and privileges 

15 with respect to stock under paragraph (2)(C)(iii) of 

16 such section; and 

17 (3) the requirements of paragraphs 

18 (2)(C)(i)(II) and (6) of such section. 

19 (g) EFFECTIVE DATES.— 

20 (1) IN GENERAL.—Except as provided in para21 graph (2), the amendments made by this section 

22 shall apply to stock attributable to options exercised, 

23 or restricted stock units settled, after December 31, 

24 2019. 


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1 (2) REQUIREMENT TO PROVIDE NOTICE.—The 

2 amendments made by subsection (e) shall apply to 

3 failures after December 31, 2019. 

Æ 


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